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The US dollar enjoyed a positive Monday despite trade tensions with China.
The US dollar strengthened against the pound and the euro on Monday, fuelled both by hopes that the president would adopt a softer position on trade and the release of Israeli hostages in Gaza. Sterling and the euro each lost a little ground to the US dollar, while the pound just shaded things over the euro in quieter European trading.
We just heard that joblessness in the United Kingdom ticked up to 4.8% in August, the highest level since June 2021. Sterling fell steeply against its rivals as the news hit and must now navigate a perilous GDP report on Thursday.
Stock markets had a happier start to the week, interpreting the president’s latest comments as a sign that he would not impose such onerous tariffs on China as previously feared. Writing on Truth Social, Trump said he did not wish to hurt China, comments that boded well for some form of extension of the existing trade agreement.
Perhaps President Trump was in a more diplomatic mood after being snubbed by the Nobel Committee. Whatever his reasons, the president joined regional leaders in Israel to hail a “historic dawn of a new Middle East”. Western leaders including Keir Starmer and Emmanuel Macron have now joined Trump for a peace summit on Egypt’s Red Sea.
Macron called for stability at home while he was away on foreign duties. Yesterday, opposition parties in French parliament threatened to call a vote of no confidence in the president and his government, cobbled together another time over the weekend.
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GBP: Building a buffer
Media reports suggest Rachel Reeves is looking to build a bigger fiscal buffer than the roughly £10 billion one she constructed last time. Sterling would benefit from a bit more breathing room, which would certainly help guard against unpleasant surprises. Pretty much any decision Reeves makes will come with heavy political costs, though.
GBP/USD: the past year
EUR: A missed chance
The euro has struggled to gain a foothold after reaching a mid-September peak. At that time, the euro had reached a four-year high against the US dollar, but it has since retreated. A missed chance? Perhaps, although European Central Bank President Christine Lagarde is still hoping for a “global euro moment”.
GBP/EUR: the past year
USD: Shutdown set for long haul
Recent polls suggest most American people put the blame for the ongoing shutdown at the Republicans’ door. Still, now the issue of military pay settled, there isn’t much risk in them continuing it. The US dollar can add a weeks-long shutdown to its worry list, which also includes the outcome of tariff negotiations with China.
EUR/USD: the past year
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